Natural Gas: Are New Lows on the Way?
2024.10.25 05:55
In my last article on the gas market, I predicted a possible decline in prices starting in October and the possibility that they could reach new annual lows. This is because of the consistently above-average temperatures we are experiencing. As said, the current quarter is showing a sharp drop in prices, with a 20 percent drop from the previous quarter.
Analysis of weather models is critical to understanding possible future trends. If numerical forecast models show an increase in heating degree days (HDDs) above normal, this may indicate an increase in gas prices. Conversely, if HDDs are lower than normal, we may see a decrease in gas prices.
Natural gas production exceeds preferences
Although there are still some trouble spots, the overall situation is not as bad as one might think. Although natural gas production exceeds the preferences of most consumers, there is still quite strong structural demand. Over the past 5 years, average demand has been about 91 billion cubic feet per day, and net exports have reached an all-time high.
In addition, natural gas reserves are expected to increase by only 5 percent in September, the lowest rate in six years.
Looking at the latest production trends and weather forecasts, there is a decrease in the storage surplus.
By Sept. 26, the annual storage surplus is expected to shrink by 121 billion cubic feet, and the surplus compared to the five-year average will decrease by 178 during the same period.
The International Energy Agency shared good predictions regarding the future of global electricity demand. According to the World Energy Outlook 2024, demand is expected to double by 2050, which is a faster growth than originally expected.
This will be mainly due to the ongoing energy transition in China. It is important to remember that thermal power plants are still widely used and dependent on natural gas to produce power, so this news is encouraging for natural gas markets.
Electricity demand will continue to grow
According to the International Energy Agency, electricity demand will continue to grow at a high rate, with an increase equivalent to adding a new Japan to the world each year. China will account for most of the new demand, with two-thirds of the total over the past 10 years. The agency recently revised its forecast upward, predicting 6 percent growth over last year. This is due to the construction of new data centers and the increasing use of air conditioning units, as well as strong expansion in China.
Let us now examine our technical scenario for natural gas. We expect a slight increase in prices followed by new lows around $2.
If you are looking to trade this instrument, it is essential to choose the right one. You can bet on a gas sector stock, an ETF or a futures. Each instrument has its advantages and disadvantages, so you need to consider carefully before deciding which one to use.
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